Is Sempra (SRE) the Next Big Investment? Analysts Project 8.10% Price Increase Ahead

We recently published a list of 7 Most Undervalued Utility Stocks To Buy According To Analysts.  In this article, we are going to take a look at where Sempra (NYSE:SRE) stands against the other most undervalued utility stocks to buy according to analysts.

According to Research and Markets, the global utilities market size was valued at $6.89 trillion in 2024 and is expected to reach $8.83 trillion by 2028, growing at a compound annual growth rate (CAGR) of 6.4%. The utilities market is expected to experience growth driven by a combination of factors including global population growth, accelerated economic expansion, increased investments in renewable energy, and a rise in utility mergers and acquisitions. Key trends include a focus on investing in Power Purchase Agreements (PPAs), allocating funds toward battery storage for solar energy, and investing in technologies such as smart grids and smart meters.

Utilities: A Stable and Secure Investment 

Keith Meister, Managing Partner and Chief Investment Officer of Corvex Management, recently shared his thoughts on the utility sector. Meister emphasized that utilities are good, well-regulated businesses that have historically experienced flat electricity load growth in the country from 2013 to 2023. However, with the advent of new technologies and regulations such as the Inflation Reduction Act (I.R.A.) and Artificial Intelligence (A.I.), the projected growth rate for the sector is now at 3%. This growth is expected to be driven by the increasing demand for electricity, particularly in the context of the rising adoption of renewable energy sources and the growing need for power to support technological advancements.

Meister believes that the U.S. has incentivized great capital markets and investment in the sector, making utilities a good investment for the current cycle. According to Meister, his firm has been actively buying utilities at a 1 to 1.1 rate base, 12 times earnings, due to their attractive investment prospects. He noted that just a couple of years ago, utilities were trading at 20 times the market, but now they are at a much more reasonable two times the market. This decrease in valuation makes utilities an attractive investment opportunity, particularly when considering their guaranteed income and good dividends.

Meister highlighted the sector’s attractive features, including guaranteed income and good dividends, which make it an attractive investment opportunity. Investors don’t need to worry about multiple expansions to get 10% growth on these stocks, and any additional growth or earnings expansion would be a bonus. This makes utilities a relatively stable and secure investment option, particularly in a market where growth and returns are increasingly uncertain.

Our Methodology

To compile our list of the 7 most undervalued utility stocks to buy according to analysts, we used the Finviz and Yahoo stock screeners to find the 30 largest utility companies by market cap that are trading at a forward P/E ratio of under 20 as of October 7.  We then narrowed our choices to 7 stocks that analysts saw the most upside to, as of October 7. We also mentioned the hedge fund sentiment around each stock, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The stocks are sorted in ascending order of their upside potential.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 smallcap and largecap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A power transmission tower with a desert sunset in the background, symbolizing power and energy.

Sempra (NYSE:SRE)

Upside Potential: 8.10%

Forward P/E Ratio as of October 7: 17.03

Number of Hedge Fund Investors: 29   

Sempra (NYSE:SRE) is a global energy infrastructure company based in California, the company has a diverse portfolio spanning natural gas, electricity, and renewable energy. Sempra (NYSE:SRE) provides services to 40 million customers in both North America and Latin America. The company also has significant investments in liquefied natural gas (LNG) and energy storage facilities.

Sempra (NYSE:SRE) is poised to benefit from the Dallas Fort Worth area being the largest growing metro in the US, with rapid population growth and economic development expected to drive a 40% higher electrical load by 2030. The company has reiterated its 6% to 8% annual long-term adjusted EPS growth rate, with the FAST Graphs analyst consensus expecting 6.9% adjusted EPS growth to $5.13 in 2025 and 7% growth in adjusted EPS to $5.49 in 2026. The company’s financial condition is stable, with an interest coverage ratio of 2.7 and a 46.4% debt-to-capital ratio, which is better than the 60% debt-to-capital ratio that rating agencies desire from the industry. Sempra (NYSE:SRE) possesses a BBB+ credit rating from S&P on a stable outlook.

Sempra’s (NYSE:SRE) valuation is attractive, with a current-year P/E ratio of 17.03, a 4.05% discount to the sector median of 17.75. The company’s dividend is secure and rising, with a 3% forward dividend yield and a payout ratio of around the low 50% range, providing a significant margin of safety. Analysts forecast Sempra’s (NYSE:SRE) earnings will increase by 3.20% this year and expect the company to deliver at least 5% to 6% annual dividend growth in the years ahead. Industry analysts have reached a consensus on the stock’s Buy rating, with an average target price of $88.50 that suggests an 8.10% upside potential from its current levels.

Overall, SRE ranks 4th among the most undervalued utility stocks to buy according to analysts. While we acknowledge the potential of SRE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SRE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

 

Disclosure: None. This article is originally published at Insider Monkey.